We are undertaking a project where ALL the resulting cashflows are negative. We are undertaking the project as an operational investment, understanding that it will be a cost of doing business. HOWEVER, because all the numbers are negative, I am getting a #NUM! response. We still want to know the IRR, even if negative. Can you help? Here are the numbers:
2022 -761,198
2023 -604,215
2024 -642,156
2025 -678,380
2026 -719,923
2027 -759,800
I believe I may have come up with a solution for my particular issue, but I'd appreciate opinions as to whether my logic is correct.
In order to get the formula to work,
(1) I took the total investments (expenses), and put the entire negative balance as the investment amount (should I have used NPV?).
(2) we are realizing some savings over the years of the project, so they are in their respective years -- the total expenses for the years is the same, and NOW the formula works with the following inputs:
2022 -8,138,740
2023 719,224
2024 755,039
2025 792,686
2026 832,260
2027 873,858
Hi Cynthia,
I don't think IRR is correct to use in this case because there is no 'return' as such. NPV makes more sense. i.e. what's the net present value of the total cash flows.
Mynda
